Socially Responsible Investing

OnPhilanthropy has an essay posted titled “Socially Responsible Investing: A Foundation’s Duty?”. Personally, I wonder how investing in a generic “socially responsible” fund does anything to further the mission of most foundations. I do see how doing so might make a foundation board feel like they were doing something. But the fact that the essay has 11 comments shows that there is a lot of interest in this concept.

Far more compelling to me than socially responsible “screening”, is the emerging market for “mission aligned investments”. One such vehicle is the Bay Area Equity Fund. I met with one of the fund managers recently (my comments should not be seen as a recommendation to buy or sell any security). The fund is a venture capital fund that invests in private companies in the San Francisco Bay Area that are located in or near low-income communities. The companies they are investing in are for-profit entities that they believe are good financial investments and who measure their results with a double bottom line. Unlike Good Capital, which strives to produce below market rate returns that are augmented with social returns, the Bay Area Equity Fund believes they can achieve full market rate returns. I don’t think there is anything better or worse about shooting for market or below market rate returns (or zero financial returns for that matter). There is likely a market for investments that produce returns all along the spectrum of financial and social returns.

Right now, the philanthropic capital markets are far from mature. But over time I can clearly see how foundations may begin to commit a portion of their capital base to investments that further their mission. To me, this kind of mission aligned investing holds far more interest than simply screening publicly traded stock to avoid investing in “bad” companies.